(Yicai Global) June 6 -- The price of lithium hexafluorophosphate, a raw material that accounts for 40 percent of the cost of the electrolytes used in electric car batteries, has more than halved since the beginning of the year, and is likely to tumble further as more capacity comes into operation in the second half and demand stops growing, industry experts said.

The price of lithium hexafluorophosphate has dropped to CNY280,000 (USD42,150) a ton from a record high of CNY590,000 (USD88,361) a ton earlier this year. Last year it climbed nearly six-fold, causing many suppliers to decide to invest to hike capacity.

Since last year, twelve Chinese companies have said they will expand their lithium hexafluorophosphate capacity by a combined 377,000 tons, according to lithium industry information provider Gaogong Lithium Battery. One third of this is expected to be ready by the end of this year, which will raise the country’s total capacity to 210,000 tons.

There is going to be surplus capacity as demand for the inorganic fluoride chemical is only likely to reach 237,600 tons in 2025, according to Sinolink Securities.

Growth in demand is also slowing as many car manufacturers were forced to close during the recent Covid-19 lockdowns, and as the soaring prices of other raw materials made battery makers less willing to produce. 

“The drop in prices will cause the profitability of companies without long-standing clients to plummet and drive those with high production costs to a loss,” Wu Bingtao, manager of First Trust Panorama’s hybrid fund, told Yicai Global.

Major companies, such as Guangzhou Tinci Materials Technology, Guangdong Tonze Electric, and Zhejiang Yongtai Technology, that have penned long-term supply contracts with battery makers are likely to be little affected by the price fluctuations, though.

Do-Fluoride New Materials’ standing orders, for instance, are priced at between CNY250,000 (USD37,600) a ton and CNY300,000 a ton, so price volatility has little impact on sales, Peng Chao, secretary of the firm’s board, said last month.

Jiaozuo, central Henan province-based Do-Fluoride can still make money even if prices drop to below CNY100,000 a ton, a manager told Yicai Global. Which means that if prices continue to fall, big firms with cost advantages are likely to elbow out the competition.

Editors: Tang Shihua, Kim Taylor